New gold exchange rule may push out investors

Tightened government control over gold exchanges via higher capital requirements for investors could drive them away, exchange managers said.

Central bank governor Nguyen Van Giau told local media this week that the government was considering either shutting down all gold exchanges, or requiring investors to deposit 100 percent of the purchase price into their trading accounts.

Currently investors only need to pay 5-7 percent before trading on margin, or funding their purchases with loans.

Lam Minh Chanh, general director of Vang The Gioi (World Gold) Finance Joint Stock Co, said he expected the government would choose the second option. However, the 100 percent deposit requirement would disqualify many investors, he said.

The new rule would mean investors have to deposit nearly VND3 billion, for instance, in order to trade 100 gold taels, Chanh said.

If they have that much money, they don’t need to go to gold exchanges he said, implying investors would prefer to trade physical gold on the spot market.

There are more than 20 gold exchanges in Vietnam and many of them are run by commercial banks. At the five largest exchanges alone, trading volume can reach 2 million tales a day, worth around $3 billion.

Many investors said they would find other investment alternatives if they were asked to pay the full price up front.

Nguyen Duc Thai Han, deputy general director of Asia Commercial Bank, said the new capital requirement would reduce risks for all traders, but he argued it was suitable for largeinvestors only.

Economist Le Tham Duong from the Ho Chi Minh City Banking University was quoted by local newswire VnExpress as saying the higher capital requirement for investors was the more acceptable of the two options.

However, the 100 percent deposit rate must be gradually lowered as gold exchanges come under better control, he said.

Gold trading is not an illegal activity and there is no reason to close gold exchanges, Duong said.

Huynh Trung Khanh, vice chairman of the Vietnam Gold Business Association and a consultant to the World Gold Council, said local gold exchanges should not be blamed for anything.

There has been turmoil but, but much of it was caused by the lack of a proper legal mechanism, even though a draft decree on gold exchange management has been revised 11 times, he said.

Khanh suggested that the State Bank of Vietnam take on the job of licensing and managing gold exchanges.

Source: Thanh Nien, Tien Phong

Tags: Vietnam gold market, Vietnam gold prices